Difference Between Chapter 7 and Chapter 13 Bankruptcy

If you are having trouble paying your bills, bankruptcy may be a worthwhile option for you to consider. The two most common types of bankruptcy proceedings are Chapter 7 bankruptcy and Chapter 13 bankruptcy. As a preface, bankruptcy is the process where consumers and businesses are allowed to eliminate or only re-pay some or all of their debts under the protection of the federal bankruptcy court. Not everyone qualifies for bankruptcy, but those who do may find it as a way out of their extensive debt obligations. Businesses may use bankruptcy to temporarily stop creditors from pursuing their failing business in order to plan a turnaround strategy.

Chapter 7 bankruptcy can be utilized by both individuals (consumers) and businesses. Chapter 7 bankruptcy is the process where some or all of a debtor’s property may be sold to pay down debt. However, certain property is exempt from the bankruptcy proceedings (such as household items, cars, clothes, etc.). Exempt property is outlined in the federal bankruptcy statute. In exchange for the liquidation (voluntary sale of the debtor’s property), the debtor is relieved of most or all of their unsecured debts. Further, not all debt can be erased (such as certain student loans).

Chapter 13 bankruptcy is known as the “wage earner” bankruptcy because a person who files under this Chapter must have a reliable source of income that can be used to re-pay some portion of their debt. This is most commonly known for its re-payment terms (rather than an outright liquidation and discharge of debts). Chapter 13 bankruptcy is advantageous in the circumstance where an individual can benefit from restructuring their debt payments. A Chapter 13 bankruptcy is also advisable to a debtor who wishes to be relieved of a portion of their debt so that they can better manage other debt obligations.

Contact the Attorneys of The Noble Law Firm, P.A. to assist you with your Chapter 7 or Chapter 13 bankruptcy matter.



Share ThisShare on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someonePrint this page

Will a Trustee take my car or other personal possessions in a Chapter 7 bankruptcy?

A common question that I receive when a client files a bankruptcy is whether the Trustee is going to take the debtor’s car and sell it for the benefit of creditors. In Florida, only $1,000.00 of equity is exempt from creditors.  Many times cars are upside down, so there is no need for this analysis.  However, many times a car is fully owned by the debtor and is worth several thousand dollars.  Even in this case, a trustee will usually not have a sheriff levy the car.  The reason is there are a lot of costs that go into taking, holding and selling a car.  First a Trustee will have to pay a Sheriff to levy the car, will then have to pay storage costs to store the vehicle, then will have to pay advertising costs to properly advertise the car pursuant to Florida Statutes, and then will have to pay an auctioneer to sell the car.  Additionally, this will be a fire sale and the car will  most likely only sell for a portion of the price that it is actually worth.  Of course, the sheriff, the auctioneer, the storage company and the advertising company will all be paid before any distribution can be made to the creditors.  Additionally, the debtor will receive the first $1,000.00 of any sale.  Therefore even if a car is “worth” $9,000.00 according to Kelly Blue Book, it is doubtful that the trustee will order the sale of the car as the costs clearly outweigh the benefits.  Usually, a debtor will be able to work out a deal with the Trustee in situations where cars have considerably more than a $1000.00 in equity.  This analysis can also be used for other personal positions within a debtor’s home. 

Share ThisShare on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someonePrint this page